May 2, 2023 - Podcasts

A shaky U.S. banking system

First Republic on Monday became the second largest bank to fail in U.S. history. Since March, we've seen three of the four biggest U.S. bank failures ever. So what’s wrong with our banking system?

  • Plus, a warning on the debt ceiling.
  • And, why allergy seasons are getting worse, and how to cope.

Guests: Axios' Felix Salmon and Arielle Dreher.

Credits: Axios Today is produced by Niala Boodhoo, Alexandra Botti, Robin Linn, Fonda Mwangi and Ben O'Brien. Music is composed by Evan Viola. You can reach us at [email protected]. You can text questions, comments and story ideas to Niala as a text or voice memo to 202-918-4893.

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NIALA BOODHOO: Good morning! Welcome to Axios Today! It’s Tuesday, May 2nd. I’m Niala Boodhoo. Today: why allergy seasons are getting worse, and how to cope. Plus, a warning on the debt ceiling. But first, a shaky U.S. banking system – that’s today’s One Big Thing.

First Republic and a shaky U.S. banking system

NIALA: First Republic yesterday became the second largest bank to fail in U.S. history. And three of the four biggest U.S. Bank failures ever have happened just since March. So what's wrong with our banking system? The Fed will also be asking that question in meetings that start today. Axios’ Felix Salmon is here to help us sort through this. Hi, Felix.

FELIX SALMON: Good morning, Niala. Good morning.

NIALA: Felix, can you tell us the difference between what happened with First Republic and Silicon Valley Bank?

FELIX: Silicon Valley Bank had a massive bank run, like the biggest, fastest bank run that the world has ever seen. So, First Republic wasn't like that there wasn't like a big panicked run of everyone trying to get their money out at once. Everyone kind of understood that their money was safe there, but they also weren't getting enormous amounts of interest on their money. And so they reckoned, you know, over the course of like a month or so, they said to themselves, I can make more interest and have my money in a safer place by putting in treasury bills or money market funds or something like that.

So they just slowly pulled their money out and it turns out over the course of the second half of March, basically about a $100 billion left First Republic. And even that wasn't really enough to kill it, except for the way that First Republic had to replace that money was by borrowing it from the Fed at a much higher rate, and then that just became untenable after a while.

NIALA: So JP Morgan Chase bought First Republic yesterday. Jamie Dimon, its CEO, said that this part of the banking crisis is over and that basically there are always bank failures. What's your assessment of that?

FELIX: So he's right that probably we are not gonna see another huge bank failure we've seen. First Republic, Silicon Valley Bank and Signature Bank in the U.S. and Credit Suisse in Switzerland, all of which were enormous. And I don't think we're gonna see another enormous bank value like those. But the banking system is really struggling with the same issues that First Republic had, right?

Which is that people are taking their deposits out of the bank. It doesn't make sense to keep a substantial amount of money on deposit at the bank when the bank isn't paying you much interest and they're putting it into things which do pay interest. And that's basically screwing up the way that the banks make money, which is by bringing in money at a low interest rate and lending it out at a high interest rate. They can't bring it in at that low interest rate anymore. And so the entire banking system is looking a lot more fragile than it was a year ago.

NIALA: So on that point of JP Morgan Chase now owning First Republic, isn't there supposed to be a limit on how big banks can be?

FELIX: There is, and it's set by the office of the controller of the currency, and you're not allowed to have more than 10% of total deposits, and everyone in America seems to agree that they don't want the big banks like JP Morgan to get any bigger. And yet here we are, JP Morgan just got $200 billion bigger overnight. How is that possible? Because there's a banking crisis and basically in the banking crisis, those rules get pushed to one side and the regulators say, okay, let's just fix the banking crisis first and then worry about the size stuff.

NIALA: So I would be remiss at this point if I didn't bring up the Fed, because they are literally meeting today to discuss interest rates. How does all of this factor into what they're gonna decide to do?

FELIX: The Fed has two big jobs, right? The first is monetary policy and trying to keep the economy digging over and keep inflation in check. And then the second job is banking supervision. And being the lender of last resort to banks. And normally those two jobs are pretty separate right now. They're sort of coming together more than they normally do. And if the banking system is feeling the crunch right now and banks aren't feeling making a lot of money and they're seeing their deposits go out the door, then that's what they call a tightening of financial conditions. That's effectively a rate hike right there in terms of the degree to which it can slow down the economy. So maybe at the margin that might make the Fed less inclined to raise rates or maybe end their rate hiking cycle a bit earlier than they otherwise would.

NIALA: What do you think people listening need to understand about the American banking system right now?

FELIX: The main thing you need to know is just it's much harder to make money as a bank right now. And if it's much harder to make money, that makes them less likely to extend loans, and that's going to really kind of act as a headwind for the economy for years to come.

NIALA: Felix Salmon is Axios’ chief financial correspondent. Thanks Felix.

FELIX: Thanks, Niala.

A debt ceiling warning

NIALA: One more economic headline for you: yesterday, Treasury Secretary Janet Yellen warned that the U.S. might be unable to quote “continue to satisfy all of the government’s obligations” unquote by early June or even June 1…that’s if Congress doesn’t raise or suspend the debt limit by then.

This estimate leaves just weeks – not months – for debt ceiling negotiations between the White House and Congressional Republicans. In response to Yellen, President Biden yesterday called House Speaker Kevin McCarthy and other Congressional leaders to set up a meeting for May 9th.

In a moment, how climate change is playing a role in worsening allergies.

Why allergy seasons are getting worse

NIALA: Welcome back to Axios Today, I'm Niala Boodhoo. If April showers brought you May flowers and a whole lot of allergies, you are not alone. Allergy seasons are getting worse and are lasting longer. Axios’ healthcare reporter Arielle Dreher is here to explain why. Hi Arielle.


NIALA: Before we get to the why, I said allergy seasons. How have those seasons gotten worse?

ARIELLE: So they've gotten worse in two ways. They've actually gotten longer and they've gotten stronger in some parts of the country, no thanks to climate change. Spring allergies are what we tend to think of, I think, when we say allergy season, and that usually is the pollen that comes off of trees. But then there's actually a summer allergy season attributable to pollen from grass and then fall allergy season, which is more with weeds.

NIALA: And if you're like me, you are allergic to all of those. So how many people are like me and have allergies that we know about?

ARIELLE: The CDC estimates that about a quarter of adults in the U.S. suffer from seasonal allergies, and I think what's interesting is that seasonal might not be seasonal for much longer. As temperatures rise and winters aren't as cold and CO2 levels rise, plants are really excited about that, and they're growing a lot more and a lot faster, giving off more pollen.

NIALA: How does geography play a role in all of this?

ARIELLE: Geography really matters. A 2023 Allergy and Asthma Foundation report had a list of the top 20 allergy capital cities in the country. The majority of those are in the Midwest or on the East Coast. Seven Florida cities also ranked in that top 20. And in talking to clinicians yesterday, I learned that the Midwest is sort of this sweet spot where you have a lot of tree growth combining with a lot of grass growth in those high prairie regions like Oklahoma, Omaha, Dallas – those types of cities – and so that's why allergy seasons are a bit worse there.

What's interesting, I think, is that allergy seasons might start to get worse in other places where traditionally they haven't been as bad, and that's in part due to some of the effects of climate change.

NIALA: What can sufferers do about all of this?

ARIELLE: It's important to know what you're allergic to. And I think for someone who maybe is just starting to notice that they're suffering from a seasonal allergy, it might be easiest to go to your local pharmacy and try one of the over-the-counter antihistamines or medicines.

But if that doesn't work right away, clinicians recommend that you actually go get tested and figure out what you're actually allergic to so you can track the season and actually track the pollen counts.

Another thing clinicians recommend is being prepared for these seasons. So if you know you're allergic to something especially, you should stock up on your medicine and prepare yourself and start taking an antihistamine early before the season actually starts.

One of the things that one of the doctors I talked to mentioned is a really basic, but I think, maybe easily forgotten thing to do. So when you come home at the end of the day, you are covered in pollen. And so actually changing your clothes, taking a shower, wiping down your pets that have been outside and doing the same for your children, perhaps, that have allergies, can be really helpful in not spreading that pollen all throughout the house.

So there are lots of little things that you can do to at least bring more awareness to how that pollen is actually affecting you in your everyday life.

NIALA: That’s Axios’ Arielle Dreher. You can find her reporting in the Axios Vitals newsletter. Thanks, Arielle.

ARIELLE: Thanks so much.

NIALA: That’s it for us today! By the way if you’ve got any allergy hacks, please let me know. I’m Niala Boodhoo. Thanks for listening, stay safe and we’ll see you back here tomorrow morning.

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